MASN dispute update

[Beetlejuice]

1 hour ago, hoosiers said:

The contract should have instead focused on a minimum profitability for MASN and then backed into the rights fees with the acknowledgement that the Nats would receive the larger share of rights fees, but less than their FMV.  

 

That would never would have happened.  The DC council almost didn't approve the stadium because of their concern about the TV revenue.  And MLB wouldn't be able to find an ownership group willing to swallow that.  It was never MLB's intention that MASN would be anything beyond a stop gap until the rights could be sold to Comcast or Fox, of which Angelos would have collected the lion's share.  This and thr pre 2012 below FMV fees were part of the compensation package in order to make the deal palatable for the Os.

[hoosiers]

13 hours ago, Beetlejuice said:

 

That would never would have happened.  The DC council almost didn't approve the stadium because of their concern about the TV revenue.  And MLB wouldn't be able to find an ownership group willing to swallow that.  It was never MLB's intention that MASN would be anything beyond a stop gap until the rights could be sold to Comcast or Fox, of which Angelos would have collected the lion's share.  This and thr pre 2012 below FMV fees were part of the compensation package in order to make the deal palatable for the Os.

I appreciate the information and perhaps the expectation that PA would be happy with the huge pre-2012 profits is why Manfred has tilted the negotiations.  That said, I see nothing wrong with a minimum margin in the contract - nothing at 20%, but something near 10%.  The new ownership of the Nats was always going to receive a third of MASN so don't understand why having minimum profit margin would create issues.

[SteveA]

I have a question that is somewhat off topic to this thread, as it doesn't regard the legal minutiae of the latest decision OR the next step in the process.

But it seems reasonable to assume that eventually the legal process will be exhausted.   Eventually MASN will have to cough up some more rights fees to the Nationals, right?   The exact amount will depend on a lot of legal factors that I don't want to re-hash, but at some point some commission will decide that MASN owes the Nats some amount of money.

And that amount of money will likely be more than they are getting now.   How much more depends on all the details.   But definitely more, right?

And will there be back money to be paid from MASN to the Nats as well?   That seems to me, or am I off base?

So it seems to me that at some point, it's almost definite that Orioles-MASN will take a financial hit, it's just a question of how bad.

If that's the case, and you were in charge of the joint corporation, it would seem that preparing for that move by cutting payroll would be a prudent move.   Now unfortunately due to the Davis deal there's one chunk of payroll that is un-cuttable.   But it does seem to me that totally aside from what is best for the long-term W/L record of the Oriole team on the field, deals where you trade highly paid post-free agent veterans for young, cost-controlled talent, are a good idea if you are looking at a situation where belt tightening is needed in the next few years.

Does that seem reasonable, from a purely fiscal point of view?

So it seems that, totally ignoring wins and losses, there is a financial/fiduciary case that could be made for some type of rebuild that brings in younger, lesser paid talent, because player payroll is the biggest expense for the team.   I would think that a sharp businessman like Angelos, concerned about his business and the ramifications of passing a stable business to his heirs, would see this.

That image of Angelos makes a lot more sense than the popular idea on here that he is an old man who can't see that this team is going nowhere and will go down with the sinking ship screaming, WIN WIN WIN at all costs this year, I will not concede defeat and stand for a rebuild!   Angelos is smarter than that.

And if I am not mistaken, the ONLY media mention this season that said Angelos wouldn't rebuild, was from Rosenthal, a known Angelos hater who will always paint him in the worst possible light, and now EVEN Rosenthal now is saying the Orioles will probably be sellers.

It makes a lot more sense to me that Angelos is either staying out of it, or approving a rebuild, than the popular image in some of these discussions that he is some sort of ranting idiot saying NEVER NEVER rebuild.   There was ONE instance back in 1995 or 1996 where he refused to do a selloff (and he was proven right by the way as we made the playoffs in 1996 and had the best team in baseball the next year).   I don't know that there is any evidence that he has ever stopped or prevented a selloff in the 21 years since.   He certainly let Thrift do it in 2000.   Everyone tries to read the tea leaves and when DD said early in July that we would still be buyers, people made on OH made assumptions that the irrational old man was pushing that button, but I'm not so sure.   It wouldn't surprise me at all if Angelos has either said nothing and let DD & company do as they see fit, or actually signed off on a selloff at this point.  

[Can_of_corn]

1 minute ago, SteveA said:

I have a question that is somewhat off topic to this thread, as it doesn't regard the legal minutiae of the latest decision OR the next step in the process.

But it seems reasonable to assume that eventually the legal process will be exhausted.   Eventually MASN will have to cough up some more rights fees to the Nationals, right?   The exact amount will depend on a lot of legal factors that I don't want to re-hash, but at some point some commission will decide that MASN owes the Nats some amount of money.

And that amount of money will likely be more than they are getting now.   How much more depends on all the details.   But definitely more, right?

And will there be back money to be paid from MASN to the Nats as well?   That seems to me, or am I off base?

So it seems to me that at some point, it's almost definite that Orioles-MASN will take a financial hit, it's just a question of how bad.

 

I'm pretty sure that MASN has had to put aside funds for this eventuality.

[Frobby]

3 hours ago, Can_of_corn said:

I'm pretty sure that MASN has had to put aside funds for this eventuality.

It would have been extremely imprudent not to hold onto at least the money that the RSDC awarded before MASN appealed.   

[Beetlejuice]

Not only prudent, but a breach of fiduciary responsibility if they did not hold some deserves.  But the margins we are talking about are the differences between what has already been paid; What Angelos thought the fees should be.  There is no way he could or would even thing about absconding with the money.  The penalties would be too harsh.

 

[Beetlejuice]

Well, the higher the profit margin the less there are that can be paid out in fees.  The contract does not guarantee any profit margin for MASN.  Like every other RSN they are expected to make money from cable fees and advertising.  But for the latter that requires programming, outside of baseball there is nothing.  And like every other RSN they are required to pay fair market value for broadcast rights.

Having the Os fees tied to the Nats was a boneheaded decision.  It's going to hamstring MASN because they won't be able to afford to pay both teams and it will become insolvent.

Now had the fees had not been tied, and MASN invested the huge profits into building the network instead of Angelos pocketing them, it could have been a valuable property, far more than the money taken out.  Why mess around with millions when you could be getting billions?

[spiritof66]

There's a lot in some recent posts that I disagree with or find just plain wrong. I'll let most of it pass.

But I think it's important to comment on what I believe is an erroneous view of the controlling provision of the MASN agreement, Section 2.J.3. I'll try to be brief (in part because I've forgotten some of the details that I got into when I looked at this closely a couple of years ago), but some background and explanation are required. 

There are two main kinds of arrangements by which MLB teams have sold their cable rights. In looking at them, it's important to understand that a team's revenues from cable rights are subject to revenue sharing.

1. A team can sell its rights to an independent cable program provider. In that instance, the rights fees presumably are negotiated at arm's length. The team has an incentive to maximize the fees it receives, which go into the revenue sharing pot. Generally, MLB and the other 29 teams have no concerns about the rights fees set in those deals with independent buyers.
    
2. A team can sell its cable rights to a regional sports network that is controlled by the team (or the team's owners). Since the team (or its owners) controls both the buyer and the seller of rights fees, it can set whatever fees it wants. In most if not all situations, teams have an incentive to charge lower rights fees than they would get if they were trying to maximize those fees. One of those incentives is to reduce the amount that is subject to the team's revenue sharing obligations, since the RSN's revenues are not counted for revenue sharing purposes even if they end up in the team's or the team owner's pockets. 

Formed in the late 1990s, the Revenue Sharing Definitions Committee has the task (and it may be its only task; if I knew one way or the other, I've forgotten) is to review the second type of rights fees arrangements to ensure that MLB teams do not abuse their ability to minimize amounts subject to revenue sharing by selling their cable rights to related RSNs at an artificially low price.

As of the time of the MASN arbitration, the Committee consistently had ruled that teams in that position would be allowed to "cheat" (my word) the other teams out of revenues subject to sharing to a limited, uniform extent: using the Bortz methodology, the Committee consistently approved sales of cable rights to related RSNs so long as the RSN's operating margins did not exceed 20 percent, and sometimes more. Based on the record that I saw -- and I think I saw all everything that the courts did -- the Committee had never determined, or tried to determine, the "fair market value" of any team's cable rights by applying normal valuation techniques (comparable sales, discounted cash flows, revenue multiples, etc.) or principles. For reasons that I don't know but easily readily imagine, the Committee always looked to the economics of the RSNs, not at the underlying value of competing teams' cable rights. (I don't know whether that has remained true after the MASN arbitration.)  

Section 2.J.3 of the MASN agreement requires the Committee, in determining the "fair market value" of the rights fees paid by MASN, to "us[e] the [Committee]'s established methodology for evaluating all other related party telecast agreements in the industry." The provision is not written very clearly, let alone elegantly -- that may reflect ignorance of what the Committee did, incompetence, or a difficult negotiation. But IMO there is only one reasonable way to interpret it: the Committee was to set the rights fees paid by MASN to the Nats (and to the Orioles) in a way that would give MASN's owners the same limited ability to divert revenues and value from the teams to their RSN that is the Committee permitted every other team with an affiliated RSN to enjoy.

It's true that the MASN agreement does not state that the Bortz methodology will be used. What it does ensure is that a dispute over rights fees will be resolved in a way that would put the Orioles, the Nats and their RSN on a footing equivalent to that of other teams and RSNs; as of the time of the MASN arbitration, that meant applying the Bortz methodology and giving MASN an operating margin of at least 20% (or thereabouts). The MASN agreement does not permit the Committee to treat this as a unique, "outlier" case in which the Committee would set rights fees to be paid to the Nats in an unprecedented, expressly non-precedential, one-off valuation exercise -- and then, under the terms of the MASN agreement, require MASN to pay the same fees to the Orioles, even though its determinations had nothing to do with the value of the Orioles' cable rights. (FWIW, I thought MASN's and the Orioles' lawyers did not do a good job of presenting this point to the trial court. They may have had a good reason for arguing it the way they did, but if so they didn't explain it to me when I asked.)

If I've correctly assessed the interpretation of the MASN agreement, there are two possibilities for a successful outcome here. One is to get a court to eliminate the Committee and direct that this issue be decided by an arbitration panel other than the Committee. That has always seemed to me like a long shot. But two respected and experienced judges have endorsed that result, and New York courts sometimes react to patent unfairness in unpredictable ways. The second is that this and future decisions on the Nats' rights fees may eventually be made by a Committee whose members will include at least two intelligent, honest team officials, who will read the parties' submissions rather than just forward them to MLB, will listen to and understand the arguments rather than leave that task to MLB, and will decide the case themselves rather than abdicate that responsibility to an MLB official or its lawyers. If that happens, MASN and the Orioles have a very good chance at a much better outcome. 

[hoosiers]

spirit, I have the understanding and it has been widely discussed here that the Nats are to receive FMV for their rights fees per the MASN agreement.  In turn the Os are to receive the same fees as the Nats. 

I like the decision of the NY judges who dissented.  On a practical level, if the courts have determined that the RSDC and Commissioner conducted themselves in such a patently unfair manner, it would seem also unfair to send new proceedings back to the same cast of characters to likely reach the same decision.  The Commissioner's preferred decision is already out there.  Many of the lawyers will likely be the same.  The RSDC set rights fees as part of a bully's process resulting in a bully's decision to favor the Nats but is cloaked in language to make the calculations appear reasonable.  Sending the case back to a new RSDC seems unfair and to expect a new set of RSDC representatives to come to reach a different conclusion, something that could potentially embarrass the prior RSDC and the Commissioner, seems unlikely.

[Beetlejuice]

3 hours ago, spiritof66 said:

There's a lot in some recent posts that I disagree with or find just plain wrong. I'll let most of it pass.

But I think it's important to comment on what I believe is an erroneous view of the controlling provision of the MASN agreement, Section 2.J.3. I'll try to be brief (in part because I've forgotten some of the details that I got into when I looked at this closely a couple of years ago), but some background and explanation are required. 

There are two main kinds of arrangements by which MLB teams have sold their cable rights. In looking at them, it's important to understand that a team's revenues from cable rights are subject to revenue sharing.

1. A team can sell its rights to an independent cable program provider. In that instance, the rights fees presumably are negotiated at arm's length. The team has an incentive to maximize the fees it receives, which go into the revenue sharing pot. Generally, MLB and the other 29 teams have no concerns about the rights fees set in those deals with independent buyers.
    
2. A team can sell its cable rights to a regional sports network that is controlled by the team (or the team's owners). Since the team (or its owners) controls both the buyer and the seller of rights fees, it can set whatever fees it wants. In most if not all situations, teams have an incentive to charge lower rights fees than they would get if they were trying to maximize those fees. One of those incentives is to reduce the amount that is subject to the team's revenue sharing obligations, since the RSN's revenues are not counted for revenue sharing purposes even if they end up in the team's or the team owner's pockets. 

Formed in the late 1990s, the Revenue Sharing Definitions Committee has the task (and it may be its only task; if I knew one way or the other, I've forgotten) is to review the second type of rights fees arrangements to ensure that MLB teams do not abuse their ability to minimize amounts subject to revenue sharing by selling their cable rights to related RSNs at an artificially low price.

As of the time of the MASN arbitration, the Committee consistently had ruled that teams in that position would be allowed to "cheat" (my word) the other teams out of revenues subject to sharing to a limited, uniform extent: using the Bortz methodology, the Committee consistently approved sales of cable rights to related RSNs so long as the RSN's operating margins did not exceed 20 percent, and sometimes more. Based on the record that I saw -- and I think I saw all everything that the courts did -- the Committee had never determined, or tried to determine, the "fair market value" of any team's cable rights by applying normal valuation techniques (comparable sales, discounted cash flows, revenue multiples, etc.) or principles. For reasons that I don't know but easily readily imagine, the Committee always looked to the economics of the RSNs, not at the underlying value of competing teams' cable rights. (I don't know whether that has remained true after the MASN arbitration.)  

Section 2.J.3 of the MASN agreement requires the Committee, in determining the "fair market value" of the rights fees paid by MASN, to "us[e] the [Committee]'s established methodology for evaluating all other related party telecast agreements in the industry." The provision is not written very clearly, let alone elegantly -- that may reflect ignorance of what the Committee did, incompetence, or a difficult negotiation. But IMO there is only one reasonable way to interpret it: the Committee was to set the rights fees paid by MASN to the Nats (and to the Orioles) in a way that would give MASN's owners the same limited ability to divert revenues and value from the teams to their RSN that is the Committee permitted every other team with an affiliated RSN to enjoy.

It's true that the MASN agreement does not state that the Bortz methodology will be used. What it does ensure is that a dispute over rights fees will be resolved in a way that would put the Orioles, the Nats and their RSN on a footing equivalent to that of other teams and RSNs; as of the time of the MASN arbitration, that meant applying the Bortz methodology and giving MASN an operating margin of at least 20% (or thereabouts). The MASN agreement does not permit the Committee to treat this as a unique, "outlier" case in which the Committee would set rights fees to be paid to the Nats in an unprecedented, expressly non-precedential, one-off valuation exercise -- and then, under the terms of the MASN agreement, require MASN to pay the same fees to the Orioles, even though its determinations had nothing to do with the value of the Orioles' cable rights. (FWIW, I thought MASN's and the Orioles' lawyers did not do a good job of presenting this point to the trial court. They may have had a good reason for arguing it the way they did, but if so they didn't explain it to me when I asked.)

If I've correctly assessed the interpretation of the MASN agreement, there are two possibilities for a successful outcome here. One is to get a court to eliminate the Committee and direct that this issue be decided by an arbitration panel other than the Committee. That has always seemed to me like a long shot. But two respected and experienced judges have endorsed that result, and New York courts sometimes react to patent unfairness in unpredictable ways. The second is that this and future decisions on the Nats' rights fees may eventually be made by a Committee whose members will include at least two intelligent, honest team officials, who will read the parties' submissions rather than just forward them to MLB, will listen to and understand the arguments rather than leave that task to MLB, and will decide the case themselves rather than abdicate that responsibility to an MLB official or its lawyers. If that happens, MASN and the Orioles have a very good chance at a much better outcome. 

When looking at a contract, you can examine the language, examine the intent, or consider fairness.  You can't pick and choose when you want to do any of the three, and that is what is the at the core of this dispute.

The intent was to compensate Angelos for the Nationals moving to DC.  No one predicted that RSN revenue would explode, such to the point that ticket sales are secondary.  Would MLB have made this deal knowing that?  No, but tough.  Contract.  At the same time the Bortz methodology is not in the contract as you note.  MLB can choose the FMV methodology they see fit.  Methodologies change over time.  Or perhaps MLB considered that the 20% model is not applicable in this case as a matter of fairness, or intent.  Selig and Manfred have always maintained that their goal was to sell MASN and let the Nats go their way.  "Tough, contract" works both ways.  Indeed Judge Marks has noted the parties are sophisticated, and that they probably had their rationale for using the RSDC to establish FMV, that a rigid methodology was not specified for a reason.  Whether or not the intent was to allow Angelos to feast at the RSN tree should be considered in parallel to other intents, or not at all.

One things for certain; if the RSDC is kept, Manfred is going to warn every owner not to document a damned thing related to this.  Angelos is certain to sue again after roughly the same award comes back.  Manfed has been given Marks blessing to provide material assistance in any number of manners.  "Here's the formula, here are the figures.  Here's a calculator and fill in the blanks." The ironic part is that Angelos is probably correct that he might not get a fair hearing this time, when he probably got one last time.  You can only crap on your business partners so many times before they finally get even.  But he may have the last laugh; he will keep this tied up in the courts so long that he may not live for them to see that happen. 

[spiritof66]

34 minutes ago, Beetlejuice said:

When looking at a contract, you can examine the language, examine the intent, or consider fairness.  You can't pick and choose when you want to do any of the three, and that is what is the at the core of this dispute.

The intent was to compensate Angelos for the Nationals moving to DC.  No one predicted that RSN revenue would explode, such to the point that ticket sales are secondary.  Would MLB have made this deal knowing that?  No, but tough.  Contract.  At the same time the Bortz methodology is not in the contract as you note.  MLB can choose the FMV methodology they see fit.  Methodologies change over time.  Or perhaps MLB considered that the 20% model is not applicable in this case as a matter of fairness, or intent.  Selig and Manfred have always maintained that their goal was to sell MASN and let the Nats go their way.  "Tough, contract" works both ways.  Indeed Judge Marks has noted the parties are sophisticated, and that they probably had their rationale for using the RSDC to establish FMV, that a rigid methodology was not specified for a reason.  Whether or not the intent was to allow Angelos to feast at the RSN tree should be considered in parallel to other intents, or not at all.

One things for certain; if the RSDC is kept, Manfred is going to warn every owner not to document a damned thing related to this.  Angelos is certain to sue again after roughly the same award comes back.  Manfed has been given Marks blessing to provide material assistance in any number of manners.  "Here's the formula, here are the figures.  Here's a calculator and fill in the blanks." The ironic part is that Angelos is probably correct that he might not get a fair hearing this time, when he probably got one last time.  You can only crap on your business partners so many times before they finally get even.  But he may have the last laugh; he will keep this tied up in the courts so long that he may not live for them to see that happen. 

I'll try to reespond to this tomorrow. Sorry about the premature"send." 

Edited July 19, 2017 by spiritof66
Prematurely sent

[Beetlejuice]

1 hour ago, hoosiers said:

I like the decision of the NY judges who dissented.  On a practical level, if the courts have determined that the RSDC and Commissioner conducted themselves in such a patently unfair manner, it would seem also unfair to send new proceedings back to the same cast of characters to likely reach the same decision.  

But that's not what Judge Marks ruled on, and what the appellate court affirmed.  The award was vacated on evident impartiality, specifically due to Proskauer's representation and the Os and MASN's complaints falling on deaf ears.  All other claims made were rejected.  I don't think anyone would disagree that having biased arbitrators is fair.  But if the contract allows for bias in the arbitrators makeup, that's "fair" insofar that the parties agreed that the possibility could arise.  The only justification the court has to modify this contract and remove the RSDC would be in the case of malfeasance.  Marks couldn't find any, and neither did the majority of the appellate court.  The dissent did cite some instances of what they believed constitutes such wrongdoings, notably the $25 million advance and Manfred's public comments but the majority bluntly disagreed and they further went on to say that a future RSDC panel would behave in an unfair manner is speculation.

[Beetlejuice]

6 hours ago, spiritof66 said:

Section 2.J.3 of the MASN agreement requires the Committee, in determining the "fair market value" of the rights fees paid by MASN, to "us[e] the [Committee]'s established methodology for evaluating all other related party telecast agreements in the industry." The provision is not written very clearly, let alone elegantly -- that may reflect ignorance of what the Committee did, incompetence, or a difficult negotiation. But IMO there is only one reasonable way to interpret it: the Committee was to set the rights fees paid by MASN to the Nats (and to the Orioles) in a way that would give MASN's owners the same limited ability to divert revenues and value from the teams to their RSN that is the Committee permitted every other team with an affiliated RSN to enjoy.

It's true that the MASN agreement does not state that the Bortz methodology will be used. What it does ensure is that a dispute over rights fees will be resolved in a way that would put the Orioles, the Nats and their RSN on a footing equivalent to that of other teams and RSNs; as of the time of the MASN arbitration, that meant applying the Bortz methodology and giving MASN an operating margin of at least 20% (or thereabouts). The MASN agreement does not permit the Committee to treat this as a unique, "outlier" case in which the Committee would set rights fees to be paid to the Nats in an unprecedented, expressly non-precedential, one-off valuation exercise -- and then, under the terms of the MASN agreement, require MASN to pay the same fees to the Orioles, even though its determinations had nothing to do with the value of the Orioles' cable rights.

Where in the contract does it "ensure" that MASN, et al. should be on equal footing with other RSNs?  Where in the contract does it not permit the RSDC to take into account MASN's unique makeup?  

Methodologies and procedures can and do change over time, or else they would never change at all. And they most often change due to new circumstances.   Before MASN the RSDC existed to protect MLB and the smaller market teams.  With the formation of MASN the role of the RSDC has been explicitly expanded (by way of the contract) to ensure the Nationals get their FMV.  Without explicitly stating in the contract that MASN has to be treated like other RSN, the RSDC is well within their remit to consider the new situation (the two team, one side controlled RSN) and modify their procedures in light of their newfound fiduciary responsibility to the Nationals. 

 

 This is to ensure that not only MLB gets their taste of the fees, but because of the singular difference in MASN and the rest of the RSN, that being the Nationals are the only entity involved in an RSN that doesn't benefit at MLB's expense when fees are kept artificially low.  If YES kept their fees to the Yankees low, the Yankees still benefit. 

[Frobby]

First of all, that was an excellent synopsis of the background of the RSDC by spiritof66.

The proceedings before the new members of the RSDC will be interesting, if the Appellate Division's ruling is upheld by the Court of Appeals.    One the one hand, you have three new arbitrators, who know that their actions will be reviewed under a microscope.    On the other hand, they also know that Judge Marks found the prior panel's interpretation of the agreement to be "reasonable on its face."     In other words, if they came down with the same interpretation, absent some procedural screw-up, they know that Judge Marks would not overrule the decision.    

If I were an RSDC member, I'd insist that the RSDC get its own lawyer to advise them on how to conduct the hearing in a taint-free manner, and not give MASN a serious chance to argue that the second hearing was unduly influenced by Manfred and MLB.   And then I'd land in roughly the same spot that the first panel did. Of course by now, the RSDC doesn't have to guess what MASN's profits for 2012-16 will be; they're in the books, so the amount of the rights fees could come out differently even if the same basic priciples are applied.   

Meanwhile, according to the contract, it's now time to set the 2017-21 rights fees.    Will they even start that process while the appeal relating to the 2012-16 fees is still pending?     This is getting ridiculous.    

[Beetlejuice]

7 hours ago, Frobby said:

If I were an RSDC member, I'd insist that the RSDC get its own lawyer to advise them on how to conduct the hearing in a taint-free manner, and not give MASN a serious chance to argue that the second hearing was unduly influenced by Manfred and MLB.   And then I'd land in roughly the same spot that the first panel did. Of course by now, the RSDC doesn't have to guess what MASN's profits for 2012-16 will be; they're in the books, so the amount of the rights fees could come out differently even if the same basic priciples are applied.   

Meanwhile, according to the contract, it's now time to set the 2017-21 rights fees.    Will they even start that process while the appeal relating to the 2012-16 fees is still pending?     This is getting ridiculous.    

 

YES.  Develop a plan and stick to it.

I believe MASN is still paying the NATS, at their valuation of what they think they might owe.  That is what they did for the 2012 perod.